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Emerging markets to drive insurance growth over the next decade, Munich Re

Emerging markets to drive insurance growth over the next decade, Munich Re

Emerging markets to drive insurance growth over the next decade, Munich Re
Emerging markets are expected to be the next source of insurance premium growth through the next decade, majority of which will be occurring in Asia, according to reinsurance giant Munich Re, in a report by Artemis.bm.

Despite difficult economic situations, Munich Re feels that the outlook for global insurance industry has improved over the last 12 months; and expects global insurance premium growth to exceed economic growth over the next ten years, the majority of which growth will be coming from emerging markets, such as Asia.

According to Michael Menhart, Munich Re’s Chief Economist, “The outlook for the insurance sector for the next two years has brightened, despite weaker economic development in some regions. In the medium term, many emerging markets will continue to drive growth in the insurance sector, not only in terms of growth rates but also in terms of absolute growth.”

The reinsurer predicts that by 2025, more than 25 per cent of global insurance premium growth will come from emerging markets, a significant portion of which will come from emerging Asian markets. It further predicted that China will experience the highest growth in premium volume up to 2025, moving it up from third in the global ranking of primary insurance markets by premium, to second only to the U.S.

According to the Artemis.bm report, Munich Re noted that differing economic challenges, conditions, and outlooks also indicates that certain economies will likely experience greater growth in property and casualty (P&C) premiums than life premiums, and vice-versa − with emerging Asian markets expected to dominate both expected P&C and life insurance growth in the next decade.

Asia is expected to experience a compound annual growth rate (CAGR) of 9.1 per cent from 2016 to 20225 in P&C premium growth, followed by the Middle East and North Africa at 5.5 per cent. Expected to experience the least P&C market growth over the next decade are Western Europe at 1.6 per cent and North America at 1.5 per cent.

More mature markets such as the U.S. and parts of Europe will likely experience a reduced growth outlook, owing to greater education and understanding of products, higher income, and more advanced modelling capabilities that enable more affordable and adequate protection, the Artemis.bm report said.

According to Munich Re, expected growth in certain emerging Asian countries in the coming years will translate to more opportunities for insurers, reinsurers, and insurance-linked securities (ILS) players to innovate and provide beneficial solutions.

For the life insurance sector, emerging Asian markets again top the list with an expected CAGR of 10.2 per cent from 2016 to 2025. This is followed by Latin America at 7.2 per cent despite economic turmoil in Brazil and Venezuala, said Munich Re.

“By contrast, in industrialised countries, the low-interest-rate environment will remain the major challenge for some time to come, especially for the life insurance business,” said Menhart.
This changing risk landscape, said Munich Re, is both a challenge and an opportunity for insurers, reinsurer and the ILS sector.

As more people become aware of insurance solutions that protect them for various risks, including natural disasters which many Asian markets are highly vulnerable to, it is highly likely that the demand for re/insurance will also increase. To support this growth potential in emerging markets structures, capacity and skills of insurers, reinsurers, ILS players, and governments will likely be required.

Furthermore, the shifting risk landscape is driving a need for greater assessment and risk analysis/prediction tools in emerging markets, which trend will consequently support increased penetration in emerging regions.

Concluded Munich Re: “Overall, global premium growth in the next ten years will be slightly above economic growth. Whilst, at 2.9 per cent in real terms on average, growth in property-property casual premiums will be about the same as that in global GDP, we expect premium in life insurance to grow by more than 3 per cent p.a. – essentially driven by the emerging countries in Asia.”